Bankruptcy Pros and Cons Ontario
Learn how it compares to a consumer proposal, and when each option makes sense.
What Bankruptcy Means in Ontario
By declaring bankruptcy, you’re protected from creditors and free from most of your debt, but there are disadvantages to consider as well. It can be confusing trying to decide between Bankruptcy vs. Consumer Proposal.
Many of our customers find alternative debt relief options to bankruptcy that they never considered before speaking with us.
In most cases, a Consumer Proposal is the best option, as it has more advantages than personal bankruptcy.
Bankruptcy vs Consumer Proposal in Ontario
In this video, Richard Sklar, Licensed Insolvency Trustee at David Sklar & Associates, breaks down the 7 key differences between a consumer proposal and bankruptcy in simple, easy-to-understand terms.
3 Key Pros of Filing Bankruptcy in Ontario
Stay of proceedings
Calls from collection agencies will STOP! Thanks to the Bankruptcy and Insolvency Act, wage garnishments and threats of lawsuits will also stop immediately.
Cost effective
A personal bankruptcy in Ontario can costs less than other debt relief options. The exact cost depends on your income and assets.
Quick process
At David Sklar, we’ll make every process easy for you, but personal bankruptcy is a particularly quick process. Many individuals can receive an automatic discharge within nine months.
6 Key Cons of Filing Bankruptcy in Ontario
Negative Impact to your credit score
Your credit report will show a record of your bankruptcy claim for six years after discharge and you will lose all of your credit cards.
Loss of assets
When you file for personal bankruptcy, your licensed Insolvency Trustee will inform you of the assets can keep, and which you will lose. Your Trustee will calculate the value of the equity you have in your home, your investments, and other non-exempt assets, and distribute the proceeds to your creditors. During the bankruptcy period, any tax refunds you may receive will go to your creditors as well.
Debts that can not be eliminated
Child support, alimony, fines, and some student loans are excluded. Secured debts (such as mortgages) are also not covered in a bankruptcy.
Impact on employment
You must consider the fact that declaring bankruptcy may have an impact on your employment situation if you are responsible for money or trust funds. While bankrupt, you are not allowed to work as a director of a company.
Surplus Income
Surplus income is any income earned above the standards set by the Office of the Superintendent of Bankruptcy Canada. You are required to pay half of any surplus income you earn above that amount.
Added responsibilities
When you claim bankruptcy, you are required to make your regular payments which are based on your income. You must also attend two credit counselling sessions and send a monthly budget statement to your LIT.
Personal Bankruptcy vs. Consumer Proposal Side-by-Side
Bankruptcy & consumer proposals both eliminate debt and stop creditor action but they’re not the same. With a consumer proposal, you keep your assets. In bankruptcy, you may have to give up some belongings to repay creditors.
View Comparison
Consumer Proposal
Personal Bankruptcy
Debt under $250,000 (excluding mortgage)
No limit to size of debt
Available to individuals
Available to individuals or companies
You keep your assets (home, car & investments)
Surrender your assets (exemptions)
Keep your tax refund
Tax refunds go to creditors
Payments are structured based on what you can afford
Payments are based on household income and value of assets
The payment is flexible. Pay everything as lump sum or stretch over 5 years
The payment is NOT flexible.
Typically 9–21 months (longer for repeat filings)
Did you know If your income increases after declaring bankruptcy, your monthly payment will also increase.
With a Consumer Proposal, your payments do not change.
Understanding Surplus Income Payments
Each year the Superintendent of Bankruptcy outlines what they feel is a basic income for different family sizes. When declaring personal bankruptcy your income and size of your family impact the amount you will need to pay and for how long.
Frequently Asked Questions
What are the pros of declaring personal bankruptcy in Ontario?
The main advantages are: immediate creditor protection (stay of proceedings), elimination of most unsecured debts, fast process (9 months for first-time filers without surplus income), and lower cost than other debt relief options for those with limited assets.
What are the cons of personal bankruptcy?
Drawbacks include: credit report impact (R9 rating for 6 years after discharge), potential loss of non-exempt assets, surplus income payments if you earn above OSB thresholds, inability to act as a corporate director, and tax refunds going to creditors during the bankruptcy year.
Is a consumer proposal better than bankruptcy?
A consumer proposal is often the better choice when you can afford some monthly payment, want to keep your assets (home, car, investments), and your unsecured debt is under $250,000. Bankruptcy is better when you cannot afford repayment, debt exceeds $250,000, or creditors would reject a proposal.
What is surplus income in personal bankruptcy?
Surplus income is income you earn above the Office of the Superintendent of Bankruptcy’s standards for your family size. If you earn surplus income, you must pay half of the excess into your bankruptcy each month, which extends the discharge timeline from 9 to 21 months for first-time filers.
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